1. Field of Invention
This invention generally relates to the field of systems for data processing in the financial services industry, and more particularly to systems for managing substantial portfolios of derivatives and other complex financial instruments now widely used in that industry.
2. Description of the Related Art
There are several major domains of interest in the design and implementation of modern risk management systems. These include:                modeling of valuation methodologies        modeling of financial products        modeling of market environment information        frameworks for risk analysis        frameworks for persistence        
Much thought and effort has been put into the study of valuation/pricing models for the financial services industry. These studies are often of a highly theoretical and academic nature. While the continued development of pricing models is absolutely essential for the evolution of the financial business it does not supply the entire solution.
As a result of our experience in this field, we have concluded that the financial services industry cannot just concentrate on the valuation models alone. In practice, a typical financial institution at any time will have positions in significant numbers of financial instruments, the terms of which may vary significantly from one another, even within a single series of instruments. Separate and apart from the science of pricing and valuing individual instruments, is the practical problem of managing such a number of dissimilar instruments in a consistent manner. Another issue is adjusting the processing of those instruments in a consistent and coordinated way as the pricing and valuation techniques themselves evolve and change.
The ability of a firm's data processing systems to deal with such a number and variety of instruments is essential in order to support reliable and consistent financial and regulatory reporting, which is a key operating requirement for virtually all firms in this industry. Without such a system, the pricing results for similar instruments may vary inexplicably, portfolio valuations may be unreliable, and implementing new or modified pricing, valuation or processing techniques may require cumbersome instrument-by-instrument adjustments which can become impracticable.
In order to solve such problems, we must study generic computer science methodologies that bring pragmatic systems considerations to light, which may then be applied. In addition to providing a new system architecture, our solution involves a formalized approach to the implementation of pricing and risk management systems, which we believe is also essential to the success of the financial business in this area.